Wahal and Repetto Publish Research Paper on the Conjoint Nature of Value and Profitability
Sunil Wahal and Eduardo Repetto have published a research paper focused on the potential benefits of portfolios tilted toward the joint distribution of stocks that rank highly on both value and profitability. Posted recently to SSRN, the article’s abstract follows:
Novy-Marx (2013, 2014) argues that profitability and value are philosophically and economically related: buying highly productive firms at average prices is similar to buying average productivity firms at low prices. We investigate the risk and return of portfolios that hold the entire market but tilt toward the joint distribution of stocks that rank highly on both value and profitability. Over 1940-2019, such “tilted market portfolios” generated substantially higher returns than the pure market portfolio. Even in periods where value has delivered weak returns (2000-2019), tilted market portfolios offered attractive risk-reward ratios. We conclude that benefits to long-only investors come from targeting value and profitability jointly, rather than running them side-by-side or sprinkling one with the other.
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